US equities declined sharply during yesterday’s trading due to signs of higher inflation and economic slowdown, sparking concerns of stagflation.

Indicator Actual Forecast Prior
Employment Cost Index 1.2% 1.0% 0.9%
Chicago PMI 37.9 45.0 41.4
CB Consumer Confidence 97.0 104.0 103.1

 

The latest Employment Cost Index has raised concerns as it shows a significant increase of 1.2% in Q1, compared to 0.9% in Q4 of last year. This surge is higher than the anticipated 1.0% and marks the highest increase since Q1 of the previous year.

Contrary to market expectations of a rise towards 45.0, the Chicago PMI unexpectedly declined to 37.9, marking the worst reading since 2020.

Finally, consumer confidence showed a lower level of 97.0, despite estimates of 104.0, which was up from 103.1. This is the third monthly decline in a row and the lowest reading since February 2021.

Upcoming data today

Indicator Forecast Prior
ADP Employment Change 180K 184K
JOLTS Job Openings 8690K 8756K
ISM Manufacturing PMI 50.0 50.3
ISM Prices Paid 55.4 55.8

 

A new set of economic data will be released today during the US trading session. Their impact is likely to be limited, as the market’s focus is on the Federal Reserve’s decision later today.

What to expect from the Federal Reserve?

The Federal Reserve is likely to keep the current policy unchanged today. However, it is likely to sound the alarm about the recent rise in inflation and may shift to a hawkish tone once again, which will likely lead to higher US dollar bond yields, while US indices might sell off.

Yet, the Fed is in no position to avoid the recent economic releases, especially the surprising slowdown in Q1 GDP and the continuous stickiness of inflation. Therefore, whatever the Fed decides today, the market reaction will be significant.

DXY over 106.0

The US Dollar rallied across the board during yesterday’s trading, following the surprise of the Employment Cost Index, trading near its highest level since November of last year.

Such a move confirms that the upside trend has resumed. If the Federal Reserve hints at higher rates for longer, it will cut the possibility of any rate cut this year. In return, the dollar is likely to gain more ground.

A break above the 106.50 resistance area opens the door for another leg higher, possibly towards 107.30.

 

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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